“He who cares wins.”
If the many takeaways from A-Team Group’s inaugural ESG Data and Tech Summit in London last week could be summarised in one quote, it is that from Sean Taylor, Executive Director, Canaccord Genuity Wealth Management. The former military serviceman paraphrased the slogan of the UK’s elite army corps, the SAS, to characterise the importance of ESG to global capital markets.
The all-day event that brought together executives and thought leaders from all parts of the sustainable finance sector delved into myriad topics occupying the minds of data providers, chief data officers, asset managers and owners, as well as a long list of other experts in the ESG space.
But the overriding message that came through was that maximising value and minimising risks in sustainable financial propositions were dependent on one maximal purpose – the protection of the planet and the people that live on it.Taylor coined the phrase to illustrate the point that companies and assets that can show they are doing good for the environment, society and corporate governance will be most rewarded financially. And the only way to successfully demonstrate that their activities and products met the test of care is through clean, quality, consistent ESG data.
Without that, no company would be able to express such metrics as its net zero position, its carbon emissions or its wider governance, social and economic environment commitments, said Niresh Rajah, Managing Director, Head of Data, RegTech and Digital Assurance Practice at Grant Thornton.
ESG as a Data-Led Discipline
Speakers and attendees returned again and again to the theme that ESG is a data-led discipline. But it’s a theme that came with a caveat: getting that data, making it useable and putting it to use is not always an easy task.
Indeed, Philip Miller, Co-Founder and Co-Chief Executive of data software and management firm Solidatus argued that ESG is not a problem in itself – the challenge for financial institutions is getting the correct data and processes in place to demonstrate those important sustainability credentials (read more about that here).
In the opening keynote fireside chat, Jason Channell, Managing Director and Head of Sustainable Finance at Citi’s Citi Global Insights, also alluded to the issue. He described the process of getting ESG data processes right for regulatory purposes as “fiendishly complex”, while also commenting that even then, the data would be of little use unless market participants know what to do with it.The largely unstructured nature of ESG data means it requires exacting treatment before it can be incorporated into the workflows of financial firms. In a panel discussion on data strategy, Solidatus’ Lorraine Waters said chief data officers such as her face a daunting data management task, especially with regards to the lineage of ESG information. Lineage is important, she said, because it helps to provide the transparency that investors demand from their data. And transparency, as panellists through the day expressed, is a key ingredient in fostering trust and preventing greenwashing.
Elisabeth Seep, Head of ESG Product Management at RIMES Technologies, echoed the sentiment in a panel talk on best practices in sourcing and managing datasets. She stated that data cannot be satisfactorily ingested and interrogated unless it has first been validated and mastered – expertise that many clients are having to onboard or purchase because vendors don’t often provide those services.
A common view expressed at the event was that the availability of suitable data, while improving all the time, is still limited and that vendors are unable to provide all datasets that investors, regulators and consumers demand.
For firms seeking to mitigate their risks to biodiversity loss, for instance, there is a particular lack of information, Morgan Williams, SI Data Strategist at Robeco told a panel on the subject. Responding to an audience poll that showed an absence of data was the biggest handicap to protecting investors against the effects of economic damage to the natural world, Williams said firms also commonly have little understanding of what data they need nor where to find it.
Janine Hofer-Witwer, Senior Product Manager for Financial Information at integrator SIX explained in her keynote address that Europe-based institutions hoped to benefit from a planned single access point for ESG data. The digital data warehouse managed by the European Union is envisaged as an accessible store of disclosed corporate sustainability information.
For the time being, however, the regulations that are expected to feed that data pool apply only to large companies, meaning even that facility would have initial limitations.
For asset managers preparing to disclose on their funds, the shortage of data is proving an obstacle to establishing a reporting structure. Chris Johnson, Senior Product Manager, Market Data, at HSBC, said that European regulators will be expecting funds to present their ESG performance data in the middle of next year.
That will require them to include data on investee companies – even though that won’t be obliged to begin reporting their own performances until 2024. The time between will, therefore, be difficult for asset managers who will be forced to come up with other solutions to avoid sanctions.
On an optimistic note, panellists during the day heard that one of the contributors to uncertainty about disclosures – the absence of a coherent international set of reporting standards – could see some resolution in the coming years.
A panel that featured Ravi Abeywardana, Technical Director of the IFRS Foundation heard how the creation of the foundation’s International Sustainable Standards Board (ISSB) late last year had been hailed as a major step towards harmonisation, which is likely to proceed at pace.